Finance and product markets

Abstract

The nature of product market competition and its influence on firms’ decisions have a long history in economics. Competition was discussed by Adam Smith inThe Wealth of Nations. George Stigler received the Nobel Prize in 1982 for his seminal studies of industrial structure, the functioning of markets, and the causes and effects of public regulation. This long-standing interest stems from a simple fact: firms do not operate in isolation but interact within product markets. These interactions delineate the boundaries of markets, shape market dynamics, and determine the resulting intensity of competition. Inspired by these ideas, finance scholars have increasingly recognized and integrated the relevance of product market interactions when studying firms’ decisions and outcomes. This integration has broadened the scope of finance by linking firms’ financial policies to the strategic environment in which they sell products, compete with rivals, and respond to changes in market structure.